In his State of the Union Address yesterday (Tuesday) evening, U.S. President Barack Obama said the United States is experiencing another "Sputnik moment."
For a free marketer like myself, that's deeply depressing rhetoric: It reflects the reality that President Obama believes that this crisis - like others that came before it - is best solved by still more government action.
In short, while President Obama employed the language of bi-partisanship, the picture he painted was that of Big Government digging in. Just like at the time of Sputnik.
A Trip Up Into Space ... And Back Into History
As Americans reflect upon Sputnik, they're likely to recall the "Space Race" of the late 1950s and most of the 1960s - and President John F. Kennedy's challenge for the United States to put a man on the moon before the end of the 1960s. They remember that we won that race, and beat the Soviets to the moon.
Trouble is, that much-romanticized result came much later. And the reality is that the initial U.S response to Sputnik was not one of this country's finest hours of statesmanship.
While President Dwight D. Eisenhower attempted to calm the rhetoric, Congress, led by Senate Majority Leader Lyndon B. Johnson, embarked upon an orgy of public spending. At a time of zero inflation, the federal spending total for the fiscal year that ended in June 1959 was a staggering 11.7% above that of 1958, the highest peacetime increase between 1949 and the inflationary year of 1976.
The money fueled an expansion of education, entirely in the public sector, which within about five years produced the beginning of an inexorable 30 point to 40 point decline in SAT scores that was finally arrested around 1990. It also produced the "space race" that culminated with the Apollo lunar landings.
The U.S. lunar program remains a major source of national pride, to be sure. But as a former merchant banker who believes that capital is virtually always better used by the private sector than by government, the moon-landing program is also one whose actual economic worth would be easy for me to debate. (For instance, the political influence that Texas enjoys is one big reason that the U.S. Sputnik response produced a giant helping of pork in the form of the Manned Spaceflight Center - later the Johnson Space Center - which was placed in Houston, 1,000 miles from where space launches actually took place.)
Why Government-Directed Innovation Doesn't Work
President Obama's fascination with the "Sputnik moment" goes way beyond rhetoric. Just as the nation saw after Sputnik, President Obama wants to "invest" more taxpayer money in research, hoping to find a new industry or two.
Unfortunately, we don't need to go back as far as Sputnik to see that such government-directed innovation does not work: For one thing, true innovators are the least likely of all people to work well within a government bureaucracy. If you doubt this, just consider:
- The enormous waste of "green" initiatives pursued in the last five years in this country.
- The experience of Spain (pushed to the brink of bankruptcy by a national "green" strategy.
- The closure of U.S. incandescent light bulb capacity and the move of the lighting industry to China.
- And the enormous cost of ethanol subsidies.
These programs, all created by government whim, combine to show definitively that government is incapable of producing innovation.
What you get instead is politically directed expense, fueled by fashionable nostrums like energy independence and global warming. President Obama doubled down on his dedication to the latter concept last night by eliminating oil industry subsidies, and by promising fatuously that, by 2035, 80% of U.S. electricity will come from "clean" sources.
That's an amazing promise for a country that hasn't started construction on a nuclear power plant - realistically the only reliable large-scale source of new "clean" energy - in more than 30 years.
Apart from funding "innovation," President Obama wants to further increase spending on infrastructure. The problem here is that U.S. infrastructure is at least five times as expensive as it should be. You can see this from the $8.7 billion cost of the Hudson road tunnel recently cancelled by New Jersey Gov. Chris Christie.
That tunnel was the largest public-works project underway in the United States. From a functional standpoint, however, that tunnel would have been identical to the existing Holland Tunnel, completed in 1927 at a cost of $48 million - equal to $660 million today.
You can argue for a tunnel cost today of somewhat over $1 billion, as construction workers have better living standards than 1927. But much more than that is sheer waste. Comparing the projected costs of "high speed rail" projects - the $117 billion projected Amtrak Boston-Washington system, for example - with overseas equivalents shows the same differential. Until over-bureaucratic permitting procedures, union featherbedding and other factors bloating the cost of U.S. infrastructure have been eliminated, spending more on infrastructure is like pouring money down a rathole.
President Obama's proposal to freeze domestic spending for the next five years is equally flawed. To calculate the spending freeze, he's relying as a baseline on the grotesquely bloated budgets of 2010-11, which are literally stuffed full of useless "stimulus" spending and other waste.
As the U.S. economy recovers and unemployment declines, domestic spending can be expected to decline naturally, so President Obama is truly offering nothing useful here. In any case, a five-year freeze is as meaningless as his 2035 energy commitment. Spending can only be cut by reforming entitlements and closing government departments now, as is being done in Britain. President Obama offers none of this, giving only windy rhetorical support to the recommendations of his deficit commission.
There were a few positive notes in President Obama's speech.
He expressed a desire for simplification of the tax system and of the government bureaucracy. Those are both worthy aspirations, though they were also vague in detail. He called for signature of the South Korea trade agreement, which he tweaked in December. But, alas, he did not do the same for the agreements reached with Colombia and Panama, which have languished in a protectionist Congress since 2007.
And President Obama's rhetoric and delivery were - as always - beautiful and in a true sense inspiring.
President Obama is good at rhetoric - it's that Ivy League education, as well as his very clear natural ability. But one can only wish he had majored in economics (at a free-market-oriented university), or in a hard science, or had run a business for a few years. Without those qualifications, President Obama must too often fall back on a messianic faith in government.
In last night's State of the Union address, he told America that "we can't win the future with a government of the past." Unfortunately, with his "Sputnik moment" analogy, that's precisely what he's proposing.
You don't have to be a victim.
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News and Related Story Links:
- WhiteHouse.gov:
President Barack Obama. - NASA.gov:
Sputnik. - WhiteHouse.gov:
Dwight D. Eisenhower. - Money Morning News Archive:
Stories by Martin Hutchinson. - Money Morning Open Letter to U.S. President Barack Obama:
An Open Letter to Washington: How to Slash the Federal Budget Deficit and Save the U.S. Economy. - Money Morning Open Letter to Washington:
An Open Letter to Washington: How to Fix the Deficit and End the Bush-Tax-Cuts Debate. - WhiteHouse.gov:
Lyndon B. Johnson. - The Money Map Report:
Report on Special Forecast Issue. - The Money Map Report:
Password Signup Page. - AstroProf:
So Why Florida? - Money Morning Special Report:
The Tobin Tax: The Fix-It Plan Wall Street Hates ... But Can't Seem to Kill. - Money Morning Investment Research:
Bush Tax Cuts: How to Profit From the Compromise Tax Deal In 2011. - Wikipedia:
SAT Tests. - MoonDaily.com:
Our First Lunar Program: What Did We Get From Apollo? - SeekingAlpha.com:
Why Washington's Green Jobs Initiative Won't Work. - New Jersey Gov. Chris Christie:
Official Website. - CNN.com:
N.J. Governor Kills Hudson River Tunnel Project. - The National Commission on Fiscal Responsibility and Reform Report:
The Moment of Truth (December 2010).
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About government spending and R&D. You talk total rubbish. Having been an industrial, academic and government scientist for the last 40 years and having had had to put up with the totally destructive influence "free marketeers" have had on R&D and science, I can only believe that an MBA is a "means bugger all". Government, including the American Government, has made massive contributions to all sciences and their spin-off technlogies that "free" marketeers profit from, from mining, the discovery of ore bodies, agriculture, medicine to the humble and highly efficent double burner wood stove developed by NZ government scientists and which has produced millions for the entrepreneurs who manufactured and sold them. Only a damn fool could criticise governmnet spending on education and science, and the more I read of the free market literature the more it seems the writers of free malarkey economics live in a LaLa Land of false assumptions about economics and people. The Chicago School of Economics is one such bunch.
Martin,
You are too negative on the speech. Many science and technology innovations that we use today are a direct result of the money spent on the "Sputnik event". We would not have Internet which is driving the modern communication and finance. Lasers, fuel tech, semi-conductors, robotics, all these are connected to the revolution of technology byproduct. Spending on education is greatly beneficial and so is on infra-structure. If we follow your suggestions, we will be mired in deflation and huge unemployment leading to high crime. Thank goodness you are not the president.
This is not directly related to this story,except by default,but is directed to all of the US Dollar stories that I love to read.I 100% beleive that the Aluminati is deliberately crashing the US dollar to usher in the One World Government,the One World Religion,etc.This is all not about economics only,it is about totally control.Do you now how to boil a frog,slowly.That is what is happening to us.The heat is rising,I know you can feel it.God Bless,from Australia.
I agree 100% with Satyendra Dave!
You are and embarrassment to this site. You need to go back to school and get and education, a real education.
Learn about positivity, learn to see the big picture.
Grow up!
Were the markets "free" during the last Bush administration? That didn't work out too well.
"Free markets" is a meaningless chant. If you study even a little history it becomes immediately apparent that some economic power entity or group has always controlled markets. In fact, central governments evolved over centuries in large part to protect citizens from economic servitude to special interests.
After the fall of Rome, complete lack of a central government resulted in centuries of feudalism. Markets have always operated best when restrained by the collective power of the public. However, regulation is constantly in need of review and reform.
You are wrong on nearly every statement you've made. True, countries like Spain might have spent incorrectly on alternative energy but that alone is not what drove them to bankruptcy. Manipulation of markets and irresponsible, dishonest financial speculation is what drove them under. The amount of money lost on alternative energy projects is minuscule compared to was was lost in the most recent financial bubble created by "free marketeers."
True, sometimes government innovation is a mistake but some of the great achievements have been stimulated by government incentive. At the end of World War II, the U.S. debt was at levels comparable or higher than today. Government programs like the G.I. Bill, expansion of education and construction of the highway system stimulated an economic expansion that lasted half a century.
You are just repeating ignorant talking points of the Tea Party. Your arguments carry little weight, you have lost a lot of credibility. Government is not the biggest problem – Wall St, no longer generating wealth except for a few speculators, has become public enemy #1.
I would tend to agree with the comments of Satyendra. I have a masters in Economics and know full well that the free market tends to fail. Free market fundamentalists such as yourself seem to have no capacity for rational inquiry and reality. WHy do markets fail, for example? Do we really want the law of the jungle to guide our markets? Is private affluence and public squalor what we really want as a society? Is private sector banking the only way to create money? THese are just some of the questions that come to mind.
Balance is the key. Government is necessary for regulation and laws and secondly government has great capacity to guide investment into areas the private sector finds too risky. Of course, some of that investment is wasted but that is the nature of "creative destruction" in the public side.
Look what the Germans did in the 30s … took control of their banks and created money, unprecedented public works projects, full employment with no inflation. THey seem to be doing much the same today. Why do you free market people never cite the Germans as an example?? Again, you labor under a great many myths about the "free market."
The President needs to be re-educated on what the role of government is. It isn't what was proposed in last night's State of the Union address. The President would take away subsidies from the Oil Companies but would subsidize alternative/clean energy. Since when is it the role of the Government to pick winners and losers in the public marketplace. Why can't government get out of the way and let the free markets decide? Neither should be subsidized. If it has merit, then business will want to support it for the business and profits it produces. If the ideas are not worthwhile, they won't. Why does GOVERNMENT GET TO PICK THE WINNERS AND LOSERS? THAT IS NOT ITS FUNCTION IN A FREE SOCIETY. We are being FORCED by government to accept these newer eco-friendly light bulbs by no longer being offered the old incandescent bulb created by Thomas Edison. Why is this being FORCED on us? Too often these newer, better products turn out to have major problems or issues of their own and then it becomes too late to go back to the perfectly servicable old product which we HAD been using for more than 100 years because it is no longer offered because the government banned it. Why not offer both and let the public pick what they want? If the newer, better version is really newer and better, then the public will go for it If it is not, then they won't. I am tired of this nanny state mentality where the government thinks the American people are too stupid to make decisions on their own about what is right in their lives.
If it wasn't for government innovation we wouldn't have sent people to the moon and the Internet wouldn't exist. The notion that private business does it better is a joke. They're the ones who brought us Enron, Worldcom, Lehman Brothers, Bear Stearns and a Windows operating system with a ton of security holes that allowed the birth of a new underground industry: online identity theft and outright thievery.
I have been following up USA since 1980 and with my frequent travels to this country I can say that despite of the major economic problems worldwide the potential problem is found on the people's behavior. Too much progress and wealth created in this country in the past left the people blind and accomodated for quick reaction. This is a human's behavior and will happen everywhere, you'll see China and India soon (and we also are seeing this happening in Brazil, the place that I am current live) so I can say to the people of USA: "Time to wake up, do not wait for any government's promises , you have the BEST country in the world so go ahead and you'll take the prosperity lost back again". But when you take it (that I really wish for all) do not move back for the old behavior! The country is READY for all of you, do not waist the opportunity!
Great feedback Martin, as usual. Thank God the Republican's made a clear and concise response, in line with what most of us see as timeless wisdom for the reduction of government and the deficit, a return to fiscal and social responsibility. I didn't stay up to see the T-Party response, so wondering what your take was on that? I believe if we don't get our house in order this year, that 2012 will be way less forgiving!
To have Obama address the nation in such a vague manner in full campaign mode is fundamentally unacceptable. His job description is as the leader of our nation but he has done almost nothing to address our number one issue- that of the economy. What has the man done to stimulate free enterprise which is where he should be expending most of his leadership ability? What has he done to stimulate investment in this economy? What has he done to advance transparency in government? Did he encourage Harry Reid to allow an up or down vote regarding health care in the Senate in order to receive the true mandate of the American people? No. Why not? Because he doesn't give a rip about the mandate of the people. He only cares about his pre conceived agenda for the country. Wake up, America. Get involved.
Why are you out to destroy the middle class all of the time while promoting the rich's interest other than they are your own self interest.
Thank you, Mr. Hutchinson, for the clearest and perhaps the best pragmatic analysis of Mr. Obama's speech I have seen to date. As you stated, it's unfortunate for USA that Mr. Obama did not major in economics or science or ever held a real job in a real business whose existence depended upon production and delivery of product that people voluntarily paid for with money they had earned (although I do not think that would have much changed his firm belief in government by elites such as himself being the answer as stated by Dale Ryan above). As an engineer, inventor and IP attorney who has worked for multiple for-profit corporations [all of which are now 100 or more years old] in widely differing fields, I was particularly displeased with his comments about innovation. To me, they evidenced a near complete lack of understanding of that subject, and arguably, even delusion. Mr. Obama clearly expressed that he believes more government is the answer, and very important in creating that innovation, by sponsoring education and R&D. I reject that viewpoint, based on personal experience in many government sponsored R&D contracts, particularly relating to new materials for use in new, more efficient engines for ground and air transport and generation of electricity. In my experience, the most effective cooperatively sponsored R&D programs began with a specific commercial end use chosen by the corporate sponsor who also put in sufficient resources at its own cost and risk. Mr. Obama's comments and projections about clean energy are unrealistic even under idyllic conditions which do not exist.
Dear Dave:
Thanks for taking the time to comment. There's no argument that there were benefits from the Apollo lunar program, and from spending through groups such as DARPA.
But I think you're missing two takeaways here. First, you absolutely cannot argue the fact that the private sector is a better innovator and better user of capital than the government. It innovates better and doesn't have to work with the consensus decision-making and pork-barreling that is part and parcel of all political decisionmaking.
And the Internet and some of these other innovations that you cite stem from specialized programs, such as DARPA, which is a government equivalent of a Lockheed-like "Skunk Works" venture that has many more private-sector attributes than the government.
If we get into a situation where the government is trying to administer innovation investments on a broad basis, the outcome won't be as positive.
The second point is that we have to cut spending. Period. The economic rebound we're experiencing right now isn't a conventional recovery. With the kind of money we've pumped out, the U.S. economy should be screaming along at 6%, 7% or 8% (I'm exaggerating a bit here, for effect). It's not. And that's because the economy is basically running off the money spigot known as the U.S. Federal Reserve.
We face massive deficits, and must shoulder a huge national debt load. This is our only chance to address that. If we don't do it now, we won't be able to down the road. And Harvard/University of Maryland research very clearly shows that Debt/GDP ratios approaching 1.0 reduce economic growth by a predictable and measurable amount.
As Martin points out, President Obama is using a highly questionable baseline to measure his spending cuts, such as they are, and I'll also note that the president didn't address such crucial issues as Social Security.
With regards to spending cuts, and your fears about deflation, I suggest that you read some of Martin's earlier columns. He actually addresses this very concern, and quantifies the maximum amount of spending cuts (the rate of cuts) that can be shouldered by the economy without causing deflation.
Again, we appreciate your comments, and the time you put into your thinking. You made several good points. But I believe we're correct on the topics that I've addressed here.
Respectfully yours;
William (Bill) Patalon III
Executive Editor
Money Morning
Why are the banks hoarding their money, because of impending inflation? If you don't want the fed to spend the money, then the private sector has to. If the private sector doesn't loan money to businesses, how are they supposed to grow and prosper? Ome on, financial institutions, step up to the plate.
Martin,
Your article is full of exaggerations if not pure falsehoods. e.g.
Spain's problem was not green energy subsidies (national finances are sound). The problem was a real estate bubble promoted by the private secotor as in the US. Now they are faced with the probable necessity to bail out real estate lenders, including German banks, in order to stave off a deeper crisis.
Regarding the closure of U.S. incandescent light bulb capacity, you must admit that this will result in massive energy savings. And why haven't US manufacturers invested in the manufacture of modern lighting?
I am hugely gratified to know that not all subscribers to this (MM) service are clones of extreme right-wing "economic theorists".
While some of your observations merit further expansion, the inflammatory and bigotted tone of your essay erases any value.
Like the bible, sections of American presidents' actions can be re-read in opposing viewpoints; The results of government coherence for food and drug safety, national defense and welfare, standardizations and research cannot be overlooked or minimized. To take you at your ideological rhetoric, brings us back to feudal city-states, with oligarchs reigning and the peasant producing.
While this may be Money Morning's actual goal, it is not one I, nor apparently, many others, subscribe to.
Please focus your rhetoric on known economic events and concerns, but try to stay away from "world war III" and damning the sitting President for complex economic events YOU KNOW cannot be corrected by one person, or, even, a "regime change"!
@Satyendra Dave – you need to research the history of education in the US before spouting off your lame statistics. education spending has increased while our educational standing in the world has decreased. the last time I looked we're 14th among the world's industrial nations. our educational back-slide has only accelerated under the Dept of Education. your suggestion to continue spending is throwing good money after bad and a poor choice. why would you, or anyone else, believe that a gov't that daily proves how inept it is at solving problems or even maintaining a standard and is rife with corruption would be benefit the people of the US by continuing the same practices? let me guess, you're a gov't employee.
I agree that the government-directed innovation does not work, at least it doesn't work in America, I am pretty sure it works in countries like Singapore or Switzerland. But the examples you give, the four bullet points, are mostly wrong. Spain wasnt pushed to the brink because of its green energy policies, but because of real estate mania. The closure of the incandescent bulb plant has nothing to do with a green strategy and proves nothing. The only major mistake is the ethanol subsidy but this is not truly a green initiative, but more of a corn and soy lobby "initiative".
Anyway, subsidizing anything is in most cases wrong, but simplifying tax codes is right. But this simplifying of the tax code ain't gonna happen because the people at the top don't care.
Sergio Amico – I think the whole world needs to wake up not just the US. The US has only prospered in the manner that she has due to the explotation of lesser countries over the decades and the fact that Europe was broke after WWII.
We are also finding out that the US has lived this supposed wonderful life on nothing but debt for severall decades now. So perhaps the US is not the BEST country afterall, if in reality it's all been nothing but a facade. If things are going to get as bad as some analysts predict in the next few years, people here in the US had best try to prepare for they say the millionaires of today are the new middle class of tomorrow.
This country is now the most indebted country in history. From my understanding whatever happens in Europe, will happen here as well. I will guess as well, in the coming years the US military will lessen (amongst other industries, but not all) and more American's will go abroad to live and work.
I’m confused! Capitalism is supposed to be the sure way to prosperity, then why am I so poor? I’m also confused by the condescending attitude and suspicion toward people who disagree with the capitalist dogma that essentially got us into the mess we’re in.
I'm eighty years-old, so I have a right to be confused: Wall Street geniuses triggered this financial disaster using other people's money (some of mine), and corporate leaders sent jobs overseas that probably will never return. Indeed, some giant retailers even encouraged their vendors to transfer their manufacturing operations to China so they could provide inventory for them at lower prices.
Large corporations are squeezing their small business vendors to give them better payment terms like, net 60, while these small businesses are unable to borrow to over these added costs (big corporations seem to be able to borrow all they need). And worst of all, opening manufacturing operations in Asia has effectively transferred our crown jewels–our technology–giving Asians the wherewithal to overcome our competitive edge.
When attempts are made to hold these corporate miscreants accountable they are deeply offended and call congress and the president "anti-business." What do these corporate geniuses expect–a Congressional Medal of Honor for what they have done and continue to do? It's all about money, which proves that money, like sex, has no conscience. It appears that the people who control 20% of the nation’s wealth have no conscience either, as witness their disproportionate lack of investment in our country’s manufacturing capacity and human resources (think education) and seek ways to evade taxes through their off-shore accounts.
I suggest that Mr. Immelt and all the members of his club repatriate some (not all) of the trillions they are sitting on in foreign banks and invest it in America. If government doesn't invest in our country, I don't see the corporate giants volunteering to dig us out of this mess. All I hear is the sucking sound of the top 2% who get bonuses even when they fail. Corporate America should consider shedding its persecution complex– it only inflames the passions of confused eighty year-olds. I wish people like yourself would assume a more even-handed approach to interpreting what they believe to be the motives of our elected officials—whichever party is in power.
And finally, give up the paranoia against government. The MARKET will correct the error of its ways—right? Now, there’s a Capitalist idea!
It's 'put up or shut up' time in America. If you have viable solutions that will work towards creating jobs and getting the US into a competitive future through new ideas and innovation, then, by all means step up to the plate. If you hadn't noticed, when Obama took office, he was left with boat ready to sink. McCain's objective was to do nothing….—- it, let the boat sink! So, give the President props for at least making the effort to do something. The finances, the bottom line means nothing if employment isn't happening…..because when America doesn't enjoy full employment in careers with benefits and a future, then Government has to step in and put their hands in it. 1) Repeal NAFTA…..keep our businesses and industry IN America. 2) Close off the borders for 30-50 years and let's reinvent ourselves….it's now the 21st Century….the rest of the world has had time to get their act together. Tough love baby!
Others above have pointed out the overly free market flaws in your commentary far better than I could, so I will simply point out that the sharp decline in SAT and other such scores that you noted was most likely due to the fact that under the new educational regime generated by the Democratic Congress in response to the Sputnik Moment, millions of Americans were, for the first time, not only allowed to finish high school and go on to college, but encouraged to do so. We are talking about Black kids from large parts of the United States, women in much of the country, and kids from lower income working class homes. Most of the kids from these backgrounds would not even have dreamed of going to college as late as the late 1950's. When those damned Liberals, led by Lyndon Johnson and many others (thanks for giving me yet one more good reason to believe that Lyndon Johnson was the best President we have had since FDR) took on the Segregationists and fought for the Civil Rights of Blacks and women and others, and waged war on poverty, they helped many millions of kids go to college. A lot of these kids came from poor areas and had poor educational backgrounds, and THAT drove down SAT scores. Speaking from a personal perspective.. my father came from a low income working class background, and he never once EVER encouraged me to go to college, despite my pretty good scholastic record. He assumed, like most working class people of his time, that college was just for rich kids, if for no other reason than that only rich kids could afford college. But thanks to the kinds of Liberal programs that you and other free marketers so frequently and often viciously attack, I got a good college education. And even though that education has never made me much money, it did change my life for the better in numerous ways. Free market economic theory is like other right wing non-sense.. it sounds great on paper, but is badly flawed in the real world because those free market theories ignore many realities of ordinary life.
It's easy to see in many of the replies to the article that the people writing them are left-wing socialist loons who think government is the answer to all our problems. Thank goodness they're not the President, and thank goodness the current President will be voted out in 2012 with any luck. By the way Satyendra and King Ralph, neither Al Gore nor the government invented the internet; goes to show you you can fool some of the people all of the time.
The U.S. is no longer a Republic,with limited govt.We have a Democracy ,with no qualifications for voting.Therefore we end up with so many ignorant voters,paying little taxes, always voting for more govt to fix problems big govt inefficiency has caused. The country just keeps getting poorer.I don't see any way out of this.
Simplifying the tax code isn't going to happen because it is the basis for government's power. Their ability to control the tax issue and spending gives government its power. If they had access to neither, then government's ability to control individual's every day lives would not exist. I am not a believer that there should be no taxes or that there isn't a role for government. I do believe that role has gotten so large over the past several decades (under both parties) that it is hurting individual enterprise and initiative. We need to scale down the size of government and get back to basics. First is what constitutes the role of the federal government, state government and local government and how to distinguish them from each other. I think the US Constitution makes it clear that the Federal government should be limited in its scope – giving most of the power to state and local entities. If this is the way it should be and we agree with this thesis (i.e. the US Constitution), then why are we sending so much money to Washington, DC and the federal government in the first place. Why isn't the larger portion of taxation done at the local and state level with a small amount going to the federal government. If this were the case, it would help lower costs taxpayers from other states pay for the bribes to senators and congressmen from other states to get their votes on bills. Taxes would stay closer to home to meet the needs and desires of people through local and state government taxes. The Federal portion would be smaller and only go to those needs and desires that should be the basis of the federal government (limited as it should be per the US Constitution) – defense, interstate roads, etc. We might actually see government become more efficient as the money doesn't get lost in waste and fraud as it works its way up the system and then back again. It makes NO SENSE to send money to Washington, DC and then have them turn around and send a certain portion back to the states or local municipaliities. The money needed at the state and local level should go no further than there. By the time you have it turnaround at the Federal level it is a miracle that any of it is used in the way it was meant.
It's like the last decade didn't happen for many posters here. Free markets worked really well (NOT) and the financial crash in 2007-8 from greed and unregulated financial institutions nearly bankrupted the country.
Obama's work at saving the country from disaster obviously went unnoticed by some of you.
Bush and Cheney who spent us into this mess ran for the hills. Remember their mantra–DEFICITS DON'T MATTER!!! Obviously many people weren't paying attention then either…
The term "Free Market" reminds me of the answer Ghandi gave a reporter when asked what he thought about western Civilization…"I think it would be a good idea"
There is no free market, whether power is concentrated in the hands of Public employees or private ones makes little difference. The market is not free, nor do any corporations really want a free market. Regulation means barriers to entry for competitors and a chance to influence policy in your favor. In a free market (perfect competition), prices drop to the point where profit disappears.
Anyone who thinks only the Government can waste money hasn't been to a Ken Lay birthday party! The reality is that stupid decisions get made with equal frequency in both the Public and Private sectors. Free marketers would tell you to vote with your money and in a truly free market that might work. Trouble is that we don't have a free market anymore than we live in a Democracy.
The greatest government innovation in history was the US Constitution which recognized the best thing a government can do for its people is provide them the maximum freedom to work hard and enjoy the fruits of their labors. Most of government's intrusions into the business realm have been destructive to varying degrees. A review of govt's subsidies and interference into the steamship development, intercontinental railroad construction and all too many public works projects will show extraordinary govt incompetence, corruption and stupidity. Competition proved to be more innovative, efficient and better. Public works projects such as the Brooklyn Bridge, Panama Canal, Hoover Dam, St Lawrence Seaway, Interstate Highways and, yes, the space programs succeeded because the government tapped into private sector experts to develop the plans, manage the efforts and innovate to overcome obstacles. And let's not forget that the very idea of going to the moon was an idea created by a private sector author decades earlier. Most corrollary innovations that followed (like computers etc) required private sector entrepreneurs to dream them up and bring them to fruition. It is fair to say that govt employees and elected representatives have the ability to innovate. Sadly, they seem to innovate new taxes, create unsustainable "feel good" programs and provide reasons (fear) to continue obviously untenable programs. Some private sector businesses and corporations innovate similarly bad things. Both should be ridiculed. It is important to remember that the housing bubble was significantly caused by political interference in the mortgage industry by changing rules to make bad loans to unqualified borrowers possible and indeed "good business" for lenders. This govt innovation played a significant role to the disaster we currently endure as we all ponder how to restore Trillions of lost equity. Thanks Congress.
Those (yes, you Mike) who think Hitler and the Nazis business model is something to be tauted as "good" or "effective" really need to re-think this as a desirable method to full employment.
They were very innovative about how to efficiently slaughter people in massive numbers, but I don't think that that is the kind of outcome we really hope to achieve. Some of those murderers had masters degrees in economics…who knew they had doctorates in insanity? I'm not sure if their greatest mistake was scaring the hell out of their best innovators to the point they emigrated (Einstein) or killing most of those who naively remained. Either way, German society lost….and caused extraordinary other losses in their death spiral into insanity. Give me free markets over Naziism any day of the week!
As for Pinkus' comment that "some economic power entity or group controlled markets"…nothing new here. Someone will always lead markets. The brilliance of the American Founding Fathers is that they established a system to unleash human innovation so that a free people would be the group in control. The conspiratorial/rich-poor argument gets trite…especially when history shows that very few families keep their wealth, power or influence more than 3 generations. In America, it has been a very fluid situation. That "wealthiest one percent…or ten percent" is often rotated among those who bust their hides and innovate, create and pursue worthwhile things that other people will buy. Take a look at the list of riches people in America…there are always additions and deletions. It's not really trickle up or trickle down….it's more like trickle through/around.
The president had another chance to truly show a defined plan based on sound economic principles with a good dose of real change that included boldness and innovation. Like so many others that preceeded him, he was full of sound and fury signifying nothing. God help us cause it doesn't look like our politicians ever will.
What a bunch of Progressives. All must have been schooled at Berkley. Never read a word of History. Don't forget Nancy Pelosi has been in charge for 4 yrs. Check the figures for the last 4 compared to the previous 6. Then open your mouth.
The utterly delusional posts I've seen in response to this article are mind-boggling. The people buying into the 'govt. as innovator' garbage are living in a delusional world. At BEST, govt. is useful at 'seeding' a project … and THAT IS IT, PERIOD. The INTERNET was started with seed money at a defense agency called DARPA, who wanted to link Universities with the Military to accelerate research and the attendant feedback loop and information sharing. The protocols developed for the next 50 years, were developed in private companies like ATT BELL LABS, and many many many others. The 'globe' now enjoys a capability 100% paid for by taxpayers and private investment. Most people have NO IDEA WHERE THE INTERNET CAME FROM OR WHY IT WAS STARTED. While I agree that govt. can sometimes have a role in promoting some things, it MUST be targeted and meaningful … it CANNOT be a 'Spray and Pray' approach to doling out funds which is what we have now. I'm embarrased at the utter ignorance of some of the posters here. Oh, by the way, when someone writes a blog about how they are an 'economist' … RUN, don't walk, to the scroll bar!
Wow,
The commentary is amazing. Martin writes one of his best articles, full of common sense in plain English, and those of us who read the comments are treated to the decline of reason in America.
@Mr. Findlay: I.E. You have no life experience? Arguably, government in general has invested vast sums in finding new methods of cleverly slaughtering human beings. Often those experiments have been used on their own people. The American government stands out not because it has done the same, but because the American people have prevented the government from killing with the same enthusiasm as most governments.
Further, I too have worked for government, and I have many friends who work as government scientists, and while it is true I have met angry people who believe a fascist state like yourself, those are the exceptions in this country. And hopefully, for the safety of the world's innocent people, it will remain that way.
@Mr. Pinkus: Only a government education could lead you to your conclusions. Government has innovated practically nothing of merit. Even when it has financed successful innovation, it was private entrepreneurs who solved the problems. I am personally related to several. Actually, your first question is a good one. However, the rest of your comment is a joke. Please check with your handlers and ask for more information when posting your screeds. You were overpaid for the copy. I would substantively respond to every error, but it is clear that you are neither familiar with Gibbon, or Churchill, much less Augustine.
@Mr. Dille: I am sorry you had a hard life. However, my own grandfather starved in the depression, and both he and my grandmother lost their teeth and health. My father in law, for example, lost almost all of his colon and his teeth. FDR was one of the worst presidents the US has ever suffered. His programs destroyed millions of farmers, wiped out millions of jobs and businesses, and resulted in several million people missing from the 1940 census who should have been there. While he instituted no deliberate mass famine, his reign of error left millions in horrible conditions. When his communist handlers finally were forced to allow him to let the country save itself by way of a Japanese stimulation program, they carefully picked winners and losers setting in motion the distinctive distortions seen today. Which brings us to…
@Mr. Simlak: Yes, we don't have a fully free market, but it never fails to astound that the solution to "capitalism" is…. more "capitalism." If you will let go of the labels which you so clearly do not understand, you may bother to find out that most of the Big Government Liberals and Big Wall Street Money happen to be on the same page. How will you become less poor more and more wealthy, if the government continues its No Banker or Socialist Billionaire Left Behind program? I mean really can't you think for yourself?
For example, if BOA, Goldman Sachs, JP Morgan, and non-banks like GE and Disney, and Unions spend lavish sums on buying influence with government, and these corporations receive treasure beyond the dreams of avarice from the pockets of working men and women: Then, by some left wing magic…. supporting these economist scam-artists and snake oil salesmen, giving them 4 or 5 or 10 times more money than a Big Govt RINO, and coming up with insults for the people whose lives are being destroyed by this theft will solve the problem.
By the logic of the left wing, we should send firemen to fight fires with pump trucks full of jet fuel and flame-throwers, and a contingent of volunteers to scream obscenities at the people burning to death.
On a different note;
@Ms. Roth: Thank you so much for carrying the water on these comments. Obviously MM cannot properly respond because we have allowed ourselves to believe we must compromise between truth and lies, right and wrong, facts and fantasy.
Congratulations to you Americans.
All of you have identified at least one problem, some more than others……a thing which we Canadians have never been able to do so far as I can see, preferring instead, to stick our heads in the sand and hope that everything is o.k.
This article was Right-On in my opinion. All points were from ideas of basic economics of a free market system. Such seem to have no significant meaning to Obama or his left-wing friends and supporters. Every time the country has elected such foolishness, we have spent years afterwards in repair of the damage. Hopefully, this time it will only be one 4-year term, but we may just have more damage this time than is repairable ever.
Topeka:
I would like to take a moment to personally congratulate you — and thank you — for one of the best-thought-out and most-well-reasoned responses to a story that I've seen since we launched Money Morning.
We appreciate the time that you put into this and thank you for caring enough to do so. Readers such as you make this job fun … and also give us hope for the future.
Well done.
Very respectfully yours;
William (Bill) Patalon III
Executive Editor
Money Morning
Thank you for many thought provoking comments. I subscribe to Money Morning, Agora Financial, Sovereign Society, S&A Alliance, Schaeffer's Research, Zack's Research, White cap research etc to learn investing as a private investor. I am a geologist and a retired science teacher.
I sincerely believe we need health care as democratically passed by the Congress and the Senate, yes, it can be tweeked as suggested by Obama. Any Republican/Tea party member who wants to kill it is too selfish and foolish and is only politically motivated.
I also believe in laws banning smoking and gun control. (Soon we will have everyone carrying a gun: a wild west)
I think govt should encourage and subsidize Stem Cell, Virus and biotechnology research: (ISCO, BTX, AVXL, NNVC, CUR, PRWP). This research can revolutionize cures for diseases and save cost. With money and openness research can be accelerated.
One sided Free market is causing decay of small businesses and huge unemployment problems. WallMart is flourishing at the cost of small enterprises. I suggest high import duties.
Just check, and you will find that that most science and technology companies have some research connection with universities. Many professors/students have started their own companies based on research started while teaching or while researching for their thesis. You need the facilities provided by the universities or govt labs. Who has thousands of dollars to spend on something that may be just academic to start. It takes time to turn turn it in to a profitable enterprise.
Spending on education is definitely a priority just as much as health care.
What I am recognizing is that people do not want to work. There are so many people that are getting a check of some kind: disability, worker's comp, food stamps, unemployment, "crazy check," etc. Some of it is warranted but I would say less than thirty percent. Also, people are wasting healthcare dollars when they do not take care of themselves, then expect to get cared for in the hospitals. When they come out, they want a check. It is unbelievable. Drugs, alcohol, strokes, heart disease are all diseases that are devastating in human cost and financially but can be prevented. Oh, by the way: I am a commie liberal so says my brother-in-law.
Is Porter Stansberry ghostwriting this dribble??? Free marketeers are who got us into the recession we are in now. That's just what we need — more unregulated capitalism so the investment bankers can steal even more money. This is not 1776 anymore; we can't just plant a garden and grab a gun to go shoot something for dinner when the economy tanks. Talk of personal responsibility is great until YOU are unemployed or disabled and see the savings account dwindling.
Somethings the government does better because it is too big for private industry (the space program and the interstate highway system to name a few) or there is no profit incentive (the cancer research done by NIH). And then there are the excesses of unrestrained capitalism such as the derivatives debacle that Wall Street has created out of the mortgage madness pushed by all the banks.
According to the writer, we just need more of the good old days of free market capitalism; yes, that is just what we need. Let's go back to the early 1900's where we had the robber barons, child labor, no minimum wage and hour, no worker's compensation, and huge corporate profits. And let's get rid of all those pesky social safety nets like Social Security and Medicaid. And a little more income disparity (as in the days before the income tax) would be good too; so, the poor will have even less money to spend at Walmart.
Those who fail to study the history of this country are destined to repeat it, and this time the consequences will be more severe I can guarantee you.